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Pacific Oil & Gas, LLC v. Chesapeake Energy Corp.

United States District Court, D. Kansas

April 18, 2017

PACIFIC OIL & GAS, LLC, ET AL., Plaintiffs,



         Plaintiffs Pacific Oil and Gas, LLC, Oil and Gas Technology, William Gumma, Conover H. Able III, Bill Pearson, Jonathan S. Wimbish, Charles G. Clark, Ronald J. Lincoln, John Horne, Clarence Cottman, Erin R. Cottman, Claire C. Keneally, John S. Keneally, Ian M. Keneally, Susan C. Connell, and Edwin C. Brown all individually and derivatively on behalf of Chisholm Partners, LLC filed this action alleging that Defendants Chesapeake Energy Corp., Chesapeake Exploration, LLC, Tom L. Ward, and John Does 1-50 conspired, in the course of acquiring mineral leases, to keep the prices for such leases artificially low by agreeing not to compete against each other during acquisition in violation of the Sherman Antitrust Act.[1]Defendants filed a Motion to Transfer Venue (Doc. 27) to the United States District Court for the Western District of Oklahoma. The principal ground for assertion that transfer is warranted is the existence of a pending lawsuit, In re: Anadarko Basin Oil & Gas Lease Antitrust Litigation (“Anadarko Basin Litigation”).[2] That suit is a consolidated proceeding of twelve cases pending before the Western District of Oklahoma alleging similar, if not identical, issues. This matter is fully briefed, and the Court is prepared to rule. For the reasoning described more fully below, the Court grants Defendants' motion to transfer to the Western District of Oklahoma.

         I. Factual and Procedural Background

         This matter has a convoluted factual background, so for purposes of brevity, the Court will briefly summarize the allegations of this suit as it relates to the pending motion to transfer. Defendant Chesapeake Energy Corporation (“Chesapeake Energy”) is a corporation organized under Oklahoma law with its principal place of business in Oklahoma. Defendant Chesapeake Exploration, LLC (“Chesapeake Exploration”) is a limited liability company organized under Oklahoma law with its principal place of business in Oklahoma. Throughout this Order, for purposes of clarity, Defendants Chesapeake Energy and Chesapeake Explorations will be referred to collectively as Chesapeake. Defendant Tom Ward, an Oklahoma resident, is the former SandRidge Energy Corporation (“SandRidge”) chief executive officer. SandRidge, prior to bankruptcy, was a corporation formed under the laws of Delaware with its principal place of business in Oklahoma.

         Plaintiffs claim Defendants colluded to rig the market for oil and gas leaseholds by agreeing to not compete against each other in acquiring the leaseholds. The Complaint in this matter alleges that Chisholm Partners, LLC (“Chisholm”), a limited liability corporation formed under Louisiana law, owned mineral leases covering 7, 300 acres in Harper and Sumner County, Kansas and approximately 21, 320 acres in Kingman County, Kansas.[3] Chisholm sold these leaseholds to Defendant Chesapeake Explorations after SandRidge suddenly withdrew from bidding. Plaintiffs, who are members or successors in interest to former members of Chisholm, claim damages based on selling their leasehold interest in Kansas for below market value as a result of the alleged conspiracy in violation of Sections 1 and 3 of the Sherman Antitrust Act. This lawsuit came following the indictment of Aubrey McClendon, the former Chesapeake Energy chief executive officer, in March 2016 for conspiracy to rig bids with an unnamed company, which was presumed to be SandRidge.[4]

         The matter before this Court was not the only lawsuit filed following McClendon's indictment. Twelve suits were filed in the Western District of Oklahoma alleging that Chesapeake and SandRidge conspired to rig bidding during their acquisition of mineral leases in the Anadarko Basin region in violation of the Sherman Act. These suits were consolidated on April 15, 2016 in the Anadarko Basin Litigation before United States District Court Judge Vicki Miles-LaGrange.[5] SandRidge filed bankruptcy following the consolidation, so Judge Miles-LaGrange administratively closed the Anadarko Basin Litigation on May 20, 2016.[6] The administrative closing gave the plaintiffs the right to re-open the Anadarko Basin Litigation within thirty days of the termination of the bankruptcy proceeding.[7]

         After the administrative closing of the Anadarko Basin Litigation in the Western District of Oklahoma, this matter was filed on July 13, 2016. The motion to transfer to the Western District of Oklahoma was filed on September 27, 2016. The parties apprised the Court through notices pursuant to D. Kan. Rule 7.1(f) in December 2016 that the Anadarko Basin Litigation was not yet re-opened, but likely would be re-opened following settlement of the bankruptcy matter involving SandRidge.[8] On January 31, 2017, the Court ordered the parties to file a status report by March 1, 2017 apprising the Court of whether the Western District of Oklahoma had ruled on the motion to re-open the Anadarko Basin Litigation.[9] The parties submitted a joint status report notifying the Court that on February 24, 2017, the bankruptcy proceedings had resolved as to SandRidge and the Anadarko Basin Litigation parties were planning to move the Western District of Oklahoma to re-open the Anadarko Basin Litigation at a March 21, 2017 status conference.[10] The Court again requested an updated status report following the March 21 status conference.[11] The parties submitted a joint status report stating that the Western District of Oklahoma re-opened the Anadarko Basin Litigation and entered an order designating co-lead counsel for the plaintiffs in that matter.[12]

         II. Legal Standard

         Defendants move to transfer this case to the Western District of Oklahoma under 28 U.S.C. § 1404. Under § 1404(a), the Court may transfer a case to any district where it might have been brought “for the convenience of the parties and witnesses” and “in the interest of justice.” The parties do not dispute that this matter could have been brought in the Western District of Oklahoma.[13] In determining whether to grant a motion to transfer, this Court considers the following discretionary factors:

the plaintiff's choice of forum; the accessibility of witnesses and other sources of proof, including the availability of compulsory process to insure attendance of witnesses; the cost of making the necessary proof; questions as to the enforceability of a judgment if one is obtained; relative advantages and obstacles to a fair trial; difficulties that may arise from congested dockets; the possibility of the existence of questions arising in the area of conflict of laws; the advantage of having a local court determine questions of local law; and, all other considerations of a practical nature that make a trial easy, expeditious and economical.[14]

         “Unless the balance is strongly in favor of the movant the plaintiff's choice of forum should rarely be disturbed.”[15] The burden of proving that the existing forum is inconvenient lies with the moving party.[16]

         III. Discussion

         Defendants argue that this matter is properly transferred to the Western District of Oklahoma given the pendency of the Anadarko Basin Litigation with nearly identical facts and underlying legal issues. Plaintiffs essentially concede that this case and the Anadarko Basin Litigation may be consolidated for purposes of discovery.[17] The question of transfer, therefore, is only a question of the proper location for trial. Thus, the Court proceeds to analyze the factors governing transfer with the question of trial location as a particular focus.

         A. Plaintiffs' Choice of Forum

         Although a plaintiff's forum choice “should rarely be disturbed, ”[18] the plaintiff's choice of forum receives little deference when, as here, the plaintiff does not reside there.[19] Plaintiff's choice of forum is also accorded little weight “where the facts giving rise to the lawsuit have no material relation or significant connection to the plaintiff's chosen forum.”[20] Defendants argue that Plaintiffs' choice of forum should not receive deference because Plaintiffs do not reside in Kansas and the underlying events occurred outside of Kansas. The Court finds Plaintiffs do not reside in Kansas, [21] so their choice of forum is afforded less weight.[22] Thus, Plaintiffs' argument on this factor rests solely on their assertion that “there is a significant connection between the facts of the present lawsuit and Kansas as the forum.”[23]

         In the briefing for this motion, Plaintiffs allege only one significant connection with Kansas, the mineral lease land at issue is located in Kansas. Plaintiffs allege in the Complaint that Chesapeake and SandRidge were actively discovering and drilling in Kansas during the relevant time period, but Plaintiffs do not allege in the briefing that this creates a significant connection to Kansas in proving the underlying conspiracy.[24] Defendants argue that the transaction was materially connected to states other than Kansas, including Oklahoma and Louisiana.

         To state a claim under § 1 of the Sherman Act, a plaintiff must plead a contract, combination, or conspiracy among two or more independent actors; that unreasonably restrains trade; and is in, or substantially affects, interstate commerce.[25] To state a claim under § 3 of the Sherman Act, a plaintiff must plead a “contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in any Territory of the United States or of the District of Columbia.”[26] Many of the key facts necessary to prove these claims will relate to the existence of the conspiracy, which allegedly took place in Oklahoma as SandRidge and Chesapeake are Oklahoma businesses. The key executive managers and employees involved are alleged to have worked almost exclusively in Oklahoma. The criminal indictment of Aubrey McClendon, which served as the catalyst for this litigation, took place in Oklahoma. Similarly, Defendants allege that the negotiations of this deal took place in Oklahoma, which Plaintiffs seemingly do not contest nor does the Complaint belie. Chisholm, the business to which Plaintiffs are successors, was a Louisiana company. Thus, a number of the material facts have significant connections to states other than Kansas.

         One of the key issues will be the difference in leasehold price between the sale of the land at issue and the sale of Kansas land in a competitive market, a key fact centered in Kansas. However, the Court is equally mindful that Plaintiffs' Complaint alleges that the land involved in the overarching conspiracy spans the entire Anadarko Basin region, which includes Kansas, Oklahoma, Texas, and Colorado.[27] While the land in this lawsuit is only in Kansas, it seems likely that evidence of the price difference of the land Chesapeake and SandRidge purchased in other states and the sales price of those leaseholds compared to market value will also be central to establishing the alleged conspiracy.

         To summarize, the Court finds that the facts giving rise to the Sherman Antitrust violation “have [a] material relation or significant connection” to Kansas. The leasehold land at issue is in Kansas, so this is a material fact that will ultimately be important when assessing the price of the land sold in this transaction as compared to other similarly situated Kansas leasehold lands in the competitive market. However, the Court also finds that the fact that the land at issue is in Kansas is somewhat neutralized given that the conspiracy alleged in the Complaint itself took place in Oklahoma and spanned the entire Anadarko Basin region, so this is not unique to Kansas. The Court therefore finds that both Oklahoma and Kansas have nearly equivalent connections to the operative facts.[28] Thus, because at least one operative fact for this litigation has a significant connection to Kansas, the choice of Kansas is entitled to some deference. This weighs against transfer.

         B. Accessibility of Witnesses and Other Sources of Proof

         “The convenience of witnesses is the most important factor in deciding a motion under § 1404(a).”[29] Defendants argue that there are no witnesses or evidence in Kansas, except for the existence of the land in Kansas. But to demonstrate inconvenience under this factor, Defendant must: “(1) identify the witnesses and their locations; (2) ‘indicate the quality or materiality of their testimony'; and (3) ‘show that any such witnesses were unwilling to come to trial, . . . that deposition testimony would be unsatisfactory, or that the use of compulsory process would be necessary.'”[30]

         Defendants offered the affidavit of Fred Gipson, the lead counsel for Chesapeake and its subsidiaries.[31] Mr. Gipson's affidavit identified the individuals involved in the transaction at issue in this lawsuit. Chesapeake no longer employs any of these individuals. Those individuals, their location, and their testimony are as follows:

• David Smith, who is living in Oklahoma City, was involved in the initial negotiations;
• Tom Flesher, who is living in Oklahoma City, handled due diligence and closing the transaction;
• Robert Portman, who is living in Oklahoma City, was the land manager for the Kansas region and was familiar with the competitive conditions in Kansas;
• James Beaver, who is living in Oklahoma City, participated in the geological analysis of the land;
• Brian Exline, who is living in Oklahoma City, approved and executed the closing documents;
• George Denny, who is living in Oklahoma City, was involved in the transaction;
• Doug Jacobson, who is living in the Oklahoma City area, was a senior manager involved in the transaction; and
• Todd Stephenson, who is living in the Oklahoma City area, was involved in the approval process for the transaction.

         Defendants also asserted Defendant Tom Ward is an Oklahoma resident and SandRidge was headquartered in Oklahoma, so it is likely that many of the witnesses involved with the transaction from SandRidge will be located in Oklahoma.

         Plaintiffs counter that it is uncertain at this point that these witnesses would be required to testify at trial because it is unknown whether they have knowledge related to the conspiracy. Plaintiffs further offer that at this stage in the litigation it is impossible to know whether the listed individuals would refuse to appear and nothing would preclude offering their testimony through deposition. Notably absent from Plaintiffs' response is identification of any key witnesses who are located in Kansas and unwilling to travel to Oklahoma to testify.

         The Court finds that the key issue at trial will be establishing the existence of a conspiracy between Chesapeake and SandRidge to rig bidding for leaseholds and depress the price for such leaseholds. Although the leaseholds involved in the conspiracy spanned the entire Anadarko Basin, the alleged conspiracy took place in Oklahoma where both companies were organized and headquartered. The executives who would have been involved in the conspiracy are presumably all located in Oklahoma. As Defendants have provided through Mr. Gispon's affidavit, the employees involved in this transaction are all located in Oklahoma. These witnesses live more than 100 miles away from Kansas City, so they would not be subject to this Court's subpoena power.[32] And there is no evidence that they would be unwilling to voluntarily travel to Kansas. Nonetheless, the Court is persuaded that deposition testimony of these witnesses may not be satisfactory given the significance and materiality of their potential testimony in this case.

         Plaintiffs cite Wiston XXV Limited Partnership v. Brophy, Gestal, Knight & Co.[33] for the proposition that the Court must deny transfer where the moving party has not made a showing that the non-party witnesses may refuse to travel for trial. The Court finds this case does not stand for such a proposition and is distinguishable. In Wiston, the plaintiff was a Kansas limited partnership with general partners who were both Kansas residents, and the defendants moved to transfer the case to the Southern District of New York.[34] The court considered the fact that the defendant offered four witnesses outside of the subpoena power of the court, while the plaintiff had one key witness who was outside the subpoena power of the New York court.[35] The Court denied transfer because it reasoned ...

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